South Europe Carmakers Rise on Signs of Austerity Ending

May 15 (Bloomberg) -- Fiat SpA, Renault SA and PSA Peugeot
Citroen gained more than 5 percent on signs that governments may
take measures to spur growth after the euro-area economy
contracted more than forecast in the first quarter.

Fiat jumped as much as 9.3 percent in Milan trading today,
while Peugeot climbed as much as 8.3 percent and Renault
advanced as much as 5.3 percent in Paris.

First-quarter gross domestic product in the 17-nation euro
zone fell 0.2 percent, extending a recession to a record sixth
quarter and increasing pressure on the currency bloc’s leaders
to take action to reverse the decline. The median of 39
estimates in a Bloomberg survey was for a 0.1 percent drop.

“There’s a feeling on the macro side that we may be
drawing to an end to the austerity in Europe,” said Philippe
Houchois, a London-based analyst with UBS Ltd. “If austerity
ends, people in South Europe would start buying cars, and not
necessarily German ones.”

Fiat gained as much as 47 cents to 5.45 euros and was up
7.1 percent as of 2:27 p.m. in Milan. Peugeot was up 5.9 percent
and Renault was 3.8 percent higher in Paris. The three have all
advanced 22 percent or more this year.

Fiat, Renault and Peugeot have been hit harder by Europe’s
recession than their German counterparts because the three
automakers are more reliant on the French, Spanish and Italian
markets, which have plunged in recent years. First-quarter auto
deliveries in across Europe dropped 9.7 percent.

Austerity Ending

France declared earlier this month that the era of
government budget cutting was over after Germany offered
flexibility on deficit reduction.

“We’re witnessing the end of the dogma of austerity,”
French Finance Minister Pierre Moscovici said on May 5 on Europe
1 radio. “We’ve been pleading for a growth policy for a year.
Austerity on its own impedes growth.”

The European Central Bank cut its benchmark interest rate
to a record low of 0.5 percent this month and President Mario
Draghi said the ECB is ready to act again if needed.

“The mass carmaker brands, such as Fiat, Peugeot and
Renault, have suffered most from the austerity measures,” said
Gian Primo Quagliano, head of automotive researcher CSP in
Bologna. “Any indication that European leaders have finally
understood the need to change their policy, with even Germany
starting to feel the pain, is a positive sign.”

Traders covering short-selling positions on Renault, Fiat
and Peugeot may have also pushed up the shares, Houchois said.

The number of Renault shares on loan, an indication of
short-sellers interest, is 31 percent of the free float, the
most since at least 2006, according to data compiled by Markit.
The short interest in Peugeot is 21 percent of the free float,
while the measure for Fiat is 17 percent, the data show.

Short sellers borrow stock and sell it, hoping to buy them
back at a lower price and pocket the difference.